Business context and reporting period
This is Aldel Financial Inc.’s Form 10-Q for the quarter ended September 30, 2021, not a quarterly operating-results filing for Hagerty, Inc. Aldel was a shell SPAC and had not commenced operations. In August 2021, it agreed to combine with The Hagerty Group, LLC; the proposed transaction would create publicly traded Hagerty, Inc. in an “Up-C” structure. Accordingly, the financial results below are Aldel’s pre-combination results, not Hagerty’s operating results.
Financial results and liquidity
- Revenue and margins: No operating revenue; the company had not begun operations. Operating margins are not meaningful.
- Net loss: $9.0 million for Q3 2021 and $10.6 million for the nine months ended September 30. Basic and diluted loss per share were $0.47 and $0.41, respectively.
- Q3 expenses and other items: General and administrative expense was $1.19 million. A $7.78 million noncash loss from remeasurement of warrant liabilities was the main driver of the quarterly net loss; trust investment income was $7,504.
- Cash flow: Operating cash use was $2.19 million for the nine-month period. Financing provided $118.76 million, principally from the IPO and private placements; investing cash use was $116.16 million as funds were placed in the trust account.
- Liquidity and balance sheet: At September 30, cash outside the trust was $407,664; trust investments were $116.16 million. Current assets were $1.22 million versus current liabilities of $86,470, a working-capital surplus of about $1.13 million. Total liabilities were $15.11 million, including $15.03 million of warrant liabilities. No working-capital loans were outstanding; the filing reports no debt.
- Equity presentation: All 11.5 million public shares, with a redemption value of $116.15 million, were classified as subject to possible redemption. Stockholders’ deficit was $13.88 million.
Changes, transaction, and management commentary
- The filing does not provide a prior-year comparable operating period; Aldel was formed in December 2020 and completed its IPO in April 2021. Thus, year-over-year operating comparisons are unavailable.
- Management revised the second-quarter presentation of redeemable shares and permanent equity. The revision increased temporary equity to the full $116.15 million redemption value and increased accumulated deficit; management stated there was no change to total assets, liabilities, or operating results.
- The proposed Hagerty transaction specified $3.0 billion of aggregate equity consideration, subject to adjustments, and a planned PIPE financing of $703.85 million. Closing conditions included shareholder/member approvals, regulatory clearance, NYSE listing approval, and at least $450 million of aggregate cash proceeds after specified deductions. The transaction was not completed as of this filing.
- Management said it did not expect to need additional funds for operations, but cautioned that higher-than-estimated diligence and transaction costs could leave insufficient cash. Sponsor or affiliates could lend funds but were not obligated to do so.
- Aldel had 18 months from the April 12, 2021 IPO closing to complete a business combination, subject to possible extension. If unsuccessful, it was required to redeem public shares; warrants could expire worthless.
- Warrant fair values rely in part on Level 3 model inputs and assumptions, making reported losses sensitive to valuation estimates. Management reported that a previously identified material weakness in internal control had been remediated by June 30, 2021; disclosure controls were assessed as effective at September 30.
Important facts for investors to verify
- Confirm that this filing is Aldel Financial’s SPAC filing, rather than Hagerty, Inc.’s operating-company financial statements.
- Review Hagerty’s separate financial disclosures and the definitive transaction documents for operating performance, final consideration, dilution, and the Up-C structure.
- Verify whether the transaction closed and whether the PIPE financing and $450 million minimum-cash condition were satisfied; these were still proposed terms in this filing.
- Assess redemption levels, available cash after transaction expenses, and Aldel’s deadline to complete a business combination.
- Consider the noncash warrant remeasurement and its model assumptions when interpreting Aldel’s net loss and stockholders’ deficit.